Fuelling inflation

India’s oil marketing companies (OMCs) are losing nearly Rs 1,000 crore daily due to crude oil prices rising to about $105 per barrel, up from $69 before the US-Iran conflict escalated. The government announced a Rs 3 per litre hike in petrol and diesel prices on Friday, following a Rs 10-per-litre cut in special excise duty in late March, though these measures still fall short of covering OMCs’ losses. The cumulative losses for OMCs in the April-June quarter could reach Rs 1 lakh crore, according to Oil Minister Hardeep Singh Puri. With crude imports accounting for over 80% of India’s oil needs, the government faces tough choices between fuel price hikes and inflationary pressures. Rising fuel costs are already affecting industries like plastics, textiles, and manufacturing, with businesses passing on higher input costs to consumers. Diesel, which powers 70% of freight transport, has broader economic implications, and economists estimate the latest price hike could raise annual inflation by 25 basis points. The government absorbed part of the crude price shock in April, keeping retail inflation at 3.48%, but further increases in fuel prices will likely widen inflationary pressures. The rupee hit a record low of 96.14 against the dollar on Friday, adding to economic challenges like a widening trade deficit and capital outflows. Policy options remain limited, with the Reserve Bank of India balancing inflation, bond yields, and currency stability while aiming to sustain growth. The government has ruled out large-scale bailouts for OMCs, instead emphasizing the need to align domestic fuel prices with global market realities.